Higher crude oil prices and lower inventory levels will translate to bigger heating bills, according to the Energy Information Administration (EIA). The agency's January Short-Term Energy Outlook (STEO) also considered what has been a much colder winter than a year ago,which is likely to increase heating fuel consumption.
Temperatures this winter, based on the forecast of heating degree days from the National Oceanic and Atmospheric Administration, are expected to be colder than last winter with approximately 10 percent more heating degree days. But this winter should be slightly warmer than normal with 2 percent fewer heating degree days than the 10-year average.
U.S. total distillate inventories for the winter heating season were 23 million barrels below 2016 inventories at the beginning of October and remained nearly 30 million barrels below 2017 levels as of Jan.12.
Since October 2017, U.S. winter inventories of ultra-low sulfur diesel (ULSD) have remained between 12 percent and 16 percent below the previous year’s inventory levels. The continued transition to the use of ULSD for heating has increased the relevance of assessing ULSD inventories for heating fuels. Reliance on heating oil is highest in the Northeast—Petroleum Administration for Defense District (PADD) 1—where about 21 percent of households in the region use oil for space heating. ULSD inventory levels in the region were nearly 49 percent below 2017 levels as of Jan. 19, and total distillate inventory levels were nearly 34 percent below last year’s levels.
Strong exports of distillate, some of which can be used as home heating oil, are contributing to lower inventories. Since the beginning of October 2017, exports (based on a four-week moving average) have exceeded those during the same time last winter for 13 out of 15 weeks. U.S. demand for distillate remained relatively stable in 2017 through October, with EIA’s proxy for demand, product supplied, fluctuating between 2 percent lower than and 6 percent higher than 2016 levels.
Higher crude oil prices are also contributing to heating fuel price increases. The Brent crude oil price is the most influential crude oil price in determining U.S. petroleum product prices. For the week ending Jan. 12, the Brent crude oil price was $69.47 per barrel (b), more than $15/b higher than the same time last year. EIA forecasts that the price of Brent will average $61/b this winter, which is more than $9/b higher than last winter.
As of Jan.15, the U.S. average residential retail heating oil price was $3.21 per gallon (gal), 58 cents higher than at the same time last year. The January STEO forecasts that the price for heating oil in the 2017–18 winter season will average $2.79/gal, 40 cents higher than the previous year. Consumption per household is forecast to increase by 7 percent to 553 gallons. As a result of both higher forecast prices and consumption, EIA expects households that heat primarily with heating oil will spend an average of $1,570 this winter, $323 more than last winter.
Increases in EIA’s projected household expenditures on propane vary by region. EIA expects that households heating with propane in the Northeast will spend an average of $2,246 this winter, $256 more than last winter. These increased expenditures combine a 6 percent increase in consumption and a 7 percent increase in the fuel price. EIA expects households heating with propane in the Midwest will spend $1,466 on average, $291 more than last winter, reflecting 12 percent increases in both propane prices and consumption.
U.S. propane inventories at the beginning of October were 78.9 million barrels, 25 million barrels below inventories at the beginning of winter last year. As of Jan. 19, inventories were 54 million barrels, 14.2 million barrels below the same time last year. The Midwest, which is the region most reliant on propane for heating and agricultural purposes, began this winter with inventories slightly below last year’s levels. Strong global demand for propane has provided export opportunities, and weekly U.S. exports of propane have exceeded last year’s volumes in 11 of the 15 weeks so far this winter.